5 Theories on the Death of Cable TV — And Why They’re Wrong

This essay is part of a longer e-book with updates for 2013. Get it today!

It’s become popular to declare the imminent demise of pay television. Whether at the hands of Google/YouTube, or as a product of cord-cutting, there’s usually a sense of righteous indignation embedded in the arguments, something like: Cable and satellite companies have been ripping off consumers for decades … and now their days are numbered.

It’s a visceral (and therefore attractive) view of the future. But there’s almost not much evidence to support it. Beyond that, the physics of media distribution argue in the other direction. Let’s quickly go through five of the myths — and debunk each one.

1. Cord Cutting will destroy cable

This is the popular argument with the most merit: that the high price of cable, the availability of online video, and the rise of the millennials will ravage cable/satellite subscriptions. And there has, in fact, been as much as a 5 million decline in paying U.S. TV households (out of a total of around 110 million U.S. TV households), according to data from NPD Group and others.

Here’s the rub: These losses are primarily tied to the housing market. When people lose their homes, or move back with their parents, cable loses one more sub. So far, the majority of cable/sat losses are tied to this kind of housing decline: Fewer occupied homes mean fewer folks paying for television. There may be a decline in the number of twenty-somethings who will pay, but so far, there’s not much hard evidence of it.

2. Netflix will destroy cable

Netflix famously surpassed Comcast this summer as the largest subscription service in the U.S. Shortly thereafter, the stock plummeted by around 70 percent. A major cause was the customer outrage that flared when Netflix split its DVD and streaming services into two different products, increasing the price to customers significantly.

But partially, the crash occurred as markets started to understand that Netflix is at big media’s mercy — not the other way around. See, Netflix must license everything it has from the big media companies, which control the ownership of that content. If you’re in the widget business, who has the upper hand: the store selling widgets at retail, or the folks who make all the widgets? Big media still makes all the widgets.

For example, Comcast’s acquisition of NBCUniversal gave it control of a massive inventory of shows and movies, including NBC, CNBC, MSNBC, Bravo Networks, USA Networks, Syfy, Telemudo, E!, Style Network, G4, the Golf Channel and Versus — plus, Universal Pictures and its motion picture distribution assets such as Imagine, Illumination, Mandalay, etc. What does Netlfix control? A few original series, such as Kevin Spacey’s “House of Cards.” For everything else, it’s a buyer who can be spurned.

Just yesterday, Netflix CEO Reed Hastings underscored this, conceding that for Netflix, licensing shows from cable networks is getting more difficult. He also said that in the future, Netflix may look more like another cable network than a cable competitor… and could even be offered as part of a cable package.

3. Tablets will destroy cable

The growth of the iPad, and of tablets generally, has been nothing short of astounding. The trajectory of the tablet has outstripped the sales of virtually every other consumer electronics platform. And as those devices have proliferated, so has video consumption via tablet and mobile: up 22 percent quarter over quarter, with all signs of accelerating.

Unlike the music business, however, the TV business has been working as quickly as it can to keep its customers on the ranch. Video via tablet is being aggressively monetized by TV distributors and rights holders — via Hulu (monetized by advertising) and Hulu Plus (subscription and advertising). “Authentication” services (described below) also solve this problem. Another under-recognized fact: Hulu is part of the big media family; it’s owned by Comcast, News Corp.s and Disney — which is why it receives rights to so much content.

So, whether you’re watching on a tablet, online or on TV, distributors are working hard to keep you subscribed.

4. Consumers will watch video online, which will destroy cable

As in the case of tablets, Big TV is dealing with online video via a process called “authentication.” The term refers to a process by which cable/sat are forcefully inserted into the online process.

A great example of authentication is the HBO GO service. From here, viewers can watch almost everything in the entire HBO catalog (all episodes of “The Sopranos,” “Entourage,” “True Blood,” etc.) for free — as long as they are paying cable customers.

To log onto the service, you enter your subscriber information from DirecTV, Comcast, Time Warner Cable or other service provider. The system then “authenticates” your subscription, by pinging the billing system of that provider. If you pay the big guys for HBO, you’re in. If you don’t, you’re out. The authentication system is another way that Big TV can maintain its hold in the digital age.

This is compounded by the massive inequality in content volume. A 42- to 44-minute TV hour is loaded with 12 to 14 30-second commercials. A typical 2- to 3-minute YouTube clip can hold one. So a piece of one-hour television inventory supports at 12-14 minutes of paid advertising, while a YouTube clip will support 30 seconds at best. That’s a 24:1 economic advantage for TV.

And if you’re producing content for YouTube, don’t count on TV money; a fraction of YouTube creators are making a living at it.

Bonus round: Social Media will destroy cable

There’s also a sense that social media will drive a decline in TV viewing. But recent successes in social for big events like the Grammys, the Super Bowl and MTV’s VMAs indicate that networks are beginning to harness the power of social to keep viewers tuning in. Expect to see more “second screen” apps that play along with television, and work hard to keep consumers watching. A great example is TBS’ new Conan tablet app, promoted by Conan himself here.

The Empire Strikes Back

Cable networks are the most profitable assets in the media business, generating billions in recurring subscription revenue per month. It’s that subscription revenue that pays most of the freight for the great shows that people love enough to search for — whether “Mad Men,” “Top Chef” or “Battlestar Galactica.” The companies that own the networks — including Comcast, News Corp., Disney and Viacom — have had plenty of time to learn from the mistakes of other businesses. With the help of the tablet, authentication services and services like Hulu, they seem to be turning the tide.

Seth Shapiro is a leading strategist, speaker and advisor in digital media. A two-time Emmy® award winner, his work includes projects in games, TV, online and mobile, for companies companies including Disney, Comcast, McCann, Intel, Time Warner, Universal, Showtime, Verizon, Sun Microsystems, Goldman Sachs, Tim Kring, Betfair UK and a range of startups. He is Principal of New Amsterdam Media, Adjunct Professor at the USC School of Cinematic Arts and Research Fellow at the Annenberg Innovation Lab. As Head of Production at DirecTV’s Advanced Products and Services group, Seth oversaw the launch of over 20 services, including NFL Sunday Ticket Digital and TiVo from DirecTV, the world’s first major DVR platform.

Don

No only Cable, but Dish and Direct TV are at risk. The consumer is getting fed up with the ever increasing amount of commercials attached to regular programs plus an increasing number of “sales” program channels. The consumer is paying for the cable/Satelite service to watch those commercials. The cable/satellite companies are paid for those commercials from BOTH the advertisers AND us, the consumer. There is now only about 20 minutes of actual programming in a 30 minute show. I, for one, am ready to dump my service in favor of an old fashioned roof top antenna for free HD local programming. Who needs 200 channels of advertising, other than the TV service provider?

vcponsardin

I am not a millennial and I cancelled my cable subscription over a year ago. I now watch everything on Netflix, Hulu and Amazon. If I want to watch the news, I’ll watch it for free online a day later–no big deal. I now prefer the freedom I get by not having cable TV. And I certainly enjoy not having to pay $60-$80 a month for hundred of channels I never watch. I will never go back to cable. It was one of the best decisions I’ve made in a long time.

maryann26

I never have gotten cable TV I am in my 30’s. I see it as a waste of money. I am hardly ever home so I cannot see paying a cable company for something that I don’t use. I am not getting cable TV. I would rather save the money.

Alvaro Malo

Just dumped DirectTV, should have done years ago! AppleTV gives me all I need at a saving of $100+ a month — all my friends are doing it, my married children did it it long ago. Mr Shapiro argument is flawed. Is he being paid by the cable industry? It is time to end their abusive monopoly and deceitful sales pitches!

Photo by "Daniel Horacio Agostini on Flickr":http://www.flickr.com/photos/dhammza/ and used here with Creative Commons license.

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